The Supreme Court has stayed the order of the Securities Appellate Tribunal (SAT) which directed the Securities and Exchange Board of India (Sebi) to return the shares pledged by Karvy Stock Broking to the brokerage's lenders.
SAT had also directed the regulator to compensate the lenders with the value of the underlying securities along with an interest of 10 percent per annum. The SAT directive was addressed to Sebi, National Stock Exchange (NSE) and the National Securities Depositories Limited (NSDL). While the apex court on January 25 granted interim relief to Sebi, it set January 29 as the date to hear pleas by the NSE and the NSDL seeking interim relief.
"There shall be a stay of the impugned order of the SAT dated December 20, 2023, insofar as the Security and Exchange Board of India is concerned," the Supreme Court said.
The court ordered status quo with respect to shares pledged with Axis bank and admitted the appeals filed by Sebi, NSE and NSDL for final hearing in April 2024.
On December 20, 2023, the SAT directed Sebi, NSE and NSDL to return the shares pledged by Karvy Stock Broking to its lenders or compensate them with the value of the securities with an interest of 10 percent per annum. Karvy's lenders Axis Bank, ICICI Bank, Bajaj Finance, HDFC Bank and IndusInd Bank had approached the tribunal after the market regulator ordered the return of securities pledged by Karvy back to the client investors.
The market regulator had ordered this after finding out that the brokerage had misappropriated clients' funds and pledged their securities with these lenders.
The SAT order had exposed the regulator, the depository and the exchange to a financial liability of over Rs 1,400 crore. Following this, the market regulator filed an appeal with the Supreme Court.
Sebi's 2019 order
The lenders had advanced loans to Karvy against shares pledged by the brokerage. When Karvy defaulted, the lenders wanted to invoke the pledge but were stopped by Sebi passing an interim order on September 22, 2019, directing the depositories not to allow the transfer of securities.
On November 22, 2019, the regulator asked depositories to transfer the securities except to the beneficial owner (client of Karvy). The lenders made a representation against this order and the regulator, in an order of December 13, 2019, said that the relief sought by the lenders were not tenable and that they should seek a remedy before a civil court of competent jurisdiction.
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